What has the Grain Agreement Achieved?
The grain agreement between Russia, Ukraine, Turkey, and the UN has been extended three times. Now, Russia is resisting. What could be the consequences and what has been achieved so far?
What is it about?
Ukraine and Russia are among the largest producers of wheat, barley, and sunflower oil. Before Russia’s attack on its neighboring country, the two states together accounted for almost a quarter of global grain exports. Ukrainian exports mainly went through the ports on the Black Sea.
After the start of the war, Russia blocked Ukraine’s exports. Russia itself faced extensive trade restrictions due to the war. Both factors led to a significant increase in grain prices in 2022, as well as in fertilizer prices, with Russia being the world’s leading exporter.
Simultaneously, economic hardship has intensified in the poorest countries in the world. Ukraine and Russia lost crucial revenue for their budgets due to reduced exports, and many farmers had to struggle to maintain their livelihoods.
What does the agreement entail?
In July 2022, an agreement was reached under the mediation of the United Nations and Turkey, which regulates the resumption of deliveries from three Ukrainian Black Sea ports and ensures safe passage for grain-loaded ships through the Bosporus.
Since then, ships have been sailing along a 310 nautical mile long and three nautical mile wide corridor. A coordination center in Istanbul is staffed with representatives from the warring parties, Turkey, and the UN. Representatives from all parties control the cargo of ships in Istanbul to ensure that only food and not weapons are on board.
The “Black Sea Grain Initiative” also includes a separate agreement between the United Nations and Russia. In this agreement, the UN promises to do everything necessary to remove the barriers that hinder Russian grain and fertilizer exports.
The agreement was initially valid for 120 days and has been extended three times, once for 120 days and twice for 60 days. The Russian government has now announced that it is not willing to extend it further, meaning it will expire at midnight local time (11:00 PM CEST) today.
What has the agreement achieved so far?
Under the agreement, approximately 33 million tons of grain and food from Ukraine have been exported to 45 countries, according to the UN. The majority of exports consisted of corn and wheat. The main recipient countries were China (around eight million tons), Spain (around six million tons), Turkey (around 3.2 million tons), and Italy (around 2.1 million tons). According to the World Bank ranking, 44 percent of exports went to wealthy countries and three percent to poor countries. The UN World Food Programme has delivered more than 725,000 tons of food to people threatened by hunger in Afghanistan, Ethiopia, Kenya, Somalia, Sudan, and Yemen.
The agreement contributed to a significant decline in global grain prices. According to the UN, prices were 23 percent below the peak levels recorded in March 2022.
Are there alternative transportation routes?
Ukraine can transport up to two million tons of grain monthly by truck and train – about half of the four million tons that the country shipped through its seaports before the Russian attack. Therefore, sea transportation is of great importance.
What are the problems?
Russia has repeatedly threatened to collapse the agreement, but with varying arguments. Most recently, the Russian side claimed that promises made to Russia as part of the agreement had not been fulfilled. In particular, Western sanctions continue to block Russian agricultural exports.
Additionally, Russia accuses Ukraine of blowing up a pipeline between the Russian city of Togliatti and the Ukrainian port of Odessa. This pipeline was built for the transport of fertilizer and ammonia and was supposed to be put back into operation soon after being deactivated since the start of the Russian offensive in February 2022.
Russia’s Foreign Ministry further accuses the West of delivering grain exports exclusively to “well-fed countries,” rather than to poor countries in Africa and Asia.
Russia Threatens to Terminate the Agreement with Changing Arguments
Russia has repeatedly threatened to collapse the agreement, but with varying arguments. Most recently, the Russian side claimed that promises made to Russia as part of the agreement had not been fulfilled. In particular, Western sanctions continue to block Russian agricultural exports.
Ukraine Allegedly Sabotaged Pipeline, Russia Accuses West of Favoring “Well-Fed Countries”
Additionally, Russia accuses Ukraine of blowing up a pipeline between the Russian city of Togliatti and the Ukrainian port of Odessa. This pipeline was built for the transport of fertilizer and ammonia and was supposed to be put back into operation soon after being deactivated since the start of the Russian offensive in February 2022.
Russia’s Foreign Ministry further accuses the West of delivering grain exports exclusively to “well-fed countries,” rather than to poor countries in Africa and Asia.
Russian food and fertilizer exports are not subjected to Western sanctions imposed after the invasion in February 2022. However, according to Russian statements, trade restrictions related to payments, logistics, and insurance pose obstacles to deliveries. Russia has therefore demanded that its state agricultural bank be exempted from Western sanctions in order to conduct business.
Reactions to the Accusations
The USA rejects these claims. US Ambassador to the UN, Linda Thomas-Greenfield, stated in May: “Russia exports grain and fertilizer in the same volume, if not more so, than before the invasion.”
Tobias Heidland from the Kiel Institute for the World Economy said on tagesschau24 that the Russian agricultural bank is not subject to Western sanctions and could theoretically do business. Like all Russian banks, it is excluded from the SWIFT system. However, there is also an EU directive that allows frozen Russian funds to be released “if they are necessary for the export of agricultural products or fertilizers.” Heidland’s conclusion: “The situation is not as difficult as Putin wants us to believe.”
Are Solutions in Sight?
Russian government spokesperson Dmitri Peskov stated that Russia would reinstate the agreement once the Russian conditions are met. However, it is currently unclear how this could happen.
Although the EU recently proposed the establishment of a subsidiary of the agricultural bank to handle financial transactions, this idea was rejected by the Russian side. The spokesperson for the Russian Foreign Ministry, Maria Zakharova, called it a “deliberately unimplementable plan.” The establishment of such a bank and its integration into the international banking communication network, SWIFT, takes months.
The lifting of sanctions against the agricultural bank, as demanded by Russia, would require the approval of EU member states, which is also considered unfeasible. Russian banks have difficulty conducting financial transactions due to their separation from the SWIFT communication network. Insuring ships and cargo is also considered challenging.
What Happens When the Grain Agreement Expires?
Without secure transport routes across the Black Sea, the Russian Navy could prevent the shipment of grain. Experts fear that this could lead to rising prices and shortages in poorer countries once again. Ukraine is also in urgent need of income from grain sales.